Perhaps the market is merely recharging its batteries for another push higher, but action had generally been lackluster until yesterday's large rally. Once $SPX failed three times last week to break out to new highs, it succumbed to selling. That selling culminated with yet another test of the 2800 support level. The market passed that test with flying colors, as a large rally rebounded from there. The take-away from this action is that the $SPX chart is still bullish as long as support holds at 2800.
Most of the other indicators have deteriorated to some extent during the last week. For example, the weighted equity-only put-call ratio (Figure 3) rolled over to a confirmed sell signal. It joins the standard ratio, which has been on a sell signal for some time.
Market breadth has been relatively weak, and both breadth oscillators remain on sell signals.
That brings us to volatility. For a brief time in the past week, it seemed as if volatility were set to turn bearish. When $SPX fell back from the 2860 level, $VIX suddenly began to spike higher. But the potential bearishness of $VIX as an indicator was not realized. $VIX never closed above 15, and then plunged on the most recent rally. So $VIX is back in the bullish camp.
In summary, despite some negative market moves and among deterioration in the indicators, $SPX continues to remain above support and that is the most important factor right now. Thus, the outlook continues to be bullish. That would change, however, with an $SPX close below 2795.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.